November 8, 2011
Commentary on economics and financial markets
October 31, 2011
So far, the crisis of 2007-2009 has inspired several films. One was the outstanding documentary Inside Job, which is unique for focusing on the culpability of academic economists. Another was Oliver Stone’s Wall Street: Money Never Sleeps, a sytlized but flawed retelling of the collapse of Bear Stearns and Lehman Brothers. Back in May, there was the HBO movie Too Big to Fail, which purported to tell the story of the TARP bailout.
Now there is Margin Call. It does not tell the story of what happened in 2008, when big firms failed and governments used taxpayer money to bail them out. Rather, it tells the story of 2007. That was when some of the savvier players, particularly Goldman Sachs, discovered that the assumptions governing their risk models for U.S. mortgages needed to be revised.
September 16, 2011 Leave a comment
In today’s confusing markets, many people are wondering whether stocks are cheap or dear, just as they wonder whether bonds represent great value or a massive bubble. The first question everyone needs to answer before making a trade is: what is already implied in the market price? My purchase of Sony stock was particularly ill-timed because I had yet to understand this concept.
Tonight I will look at what the relative yields on stocks and bonds tell us about the market’s expectations for real profit growth. If you have a strong opinion on the future profitability of American public companies, you can use this metric to help determine whether you should buy or sell shares. Read more of this post